In a July 9 research report, analyst Brian MacArthur reported that Raymond James resumed coverage on MAG Silver Corp. (MAG:TSX; MAG:NYSE A) with an Outperform rating and a CA$22 per share target price. The company's current stock price is CA$20.53 per share.
"MAG is one of the better options for investors looking for exposure to silver given its 44% interest in the world-class Juanicipio joint venture, (JV), which is a district-scale, low cost, high-grade silver development project with a strong partner and meaningful exploration potential," commented MacArthur.
The analyst discussed aspects of the MAG Silver story.
The JV's Juanicipio project, according to MacArthur, is "competitively positioned against both silver producers and developers" given its size, high silver grade, low cost and significant byproduct credits. Underground mining is scheduled to commence there in H2/20, and mill startup is slated for mid-2021. MAG Silver's joint venture partner and the project operator, Fresnillo, has an extensive history of mining in the region.
Further, Juanicipio's economics as outlined in the 2017 preliminary economic assessment (PEA) are "compelling" on their own, but "significant discoveries since then and some infrastructure changes have improved economics."
MacArthur noted the PEA forecasts that Juanicipio will generate a 44% after-tax internal rate of return and a US$1,138 million net present value at a 5% discount, assuming a silver price of US$17.90 per ounce. The operation is forecast to produce 4,000 tons of silver per day, or 9.6 million ounces of silver per year, at an all-in sustaining cost of US$5.02 per ounce, which includes taxes but excludes zinc, lead and gold byproduct credits.
The analyst pointed out that MAG Silver has enough to fund most of its portion of Juanicipio's capex, thanks to US$110 million in cash and a flexible balance sheet. Also, "initial production from the mine will be processed at Fresnillo's mill and could provide cash to help offset ongoing capital spend," he added.
Another company highlight, MacArthur indicated, is that its stock is likely to rerate once the company transitions from a developer to a producer, which is expected to happen soon.
Lastly, noted MacArthur, MAG Silver's Juanicipio still includes exploration upside, which could further enhance the project. "In addition, regionally, the JV ground hosts extensions of known trends that have yet to be drill tested, and exploration has only been done on about 5% of the property," he added.
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1) Doresa Banning compiled this article for Streetwise Reports LLC and provides services to Streetwise Reports as an independent contractor. She or members of her household own securities of the following companies mentioned in the article: None. She or members of her household are paid by the following companies mentioned in this article: None.
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Disclosures from Raymond James, MAG Silver Corp., July 9, 2020
ANALYST INFORMATION
Analyst Compensation: Equity Research analysts and associates at Raymond James are compensated on a salary and bonus system. Several factors enter into the compensation determination for an analyst, including i) research quality and overall productivity, including success in rating stocks on an absolute basis and relative to the local exchange composite index and/or sector index, ii) recognition from institutional investors, iii) support effectiveness to the institutional and retail sales forces and traders, iv) commissions generated in stocks under coverage that are attributable to the analyst's efforts, v) net revenues of the overall Equity Capital Markets Group, and vi) compensation levels for analysts at competing investment dealers.
The analyst Brian MacArthur, primarily responsible for the preparation of this research report, attests to the following: (1) that the views and opinions rendered in this research report reflect his or her personal views about the subject companies or issuers and (2) that no part of the research analyst’s compensation was, is, or will be directly or indirectly related to the specific recommendations or views in this research report. In addition, said analyst(s) has not received compensation from any subject company in the last 12 months.
RAYMOND JAMES RELATIONSHIP DISCLOSURES
Certain affiliates of the RJ Group expect to receive or intend to seek compensation for investment banking services from all companies under research coverage within the next three months. The person(s) responsible for the production of this communication declare(s) that, as far as they are aware, there are no relationships or circumstances (including conflicts of interest) that may in any way impair the objectivity of this recommendation directly or indirectly relates, this has been declared below. This statement applies equally to any persons closely associated with him or her. However, it is possible that persons making communications in relation to a financial instrument may have a holding in that instrument and this will be disclosed. As stated, Raymond James Canada (RJL) has controls in place to manage such risks.
Raymond James & Associates, Inc. makes a market in the shares of MAG Silver Corp.
Raymond James Ltd. has provided investment banking services within the last 12 months with respect to the issuer.
Raymond James Ltd. has received compensation for investment banking services within the past 12 months with respect to the issuer.
Raymond James & Associates has managed or co-managed an offering of securities for MAG Silver Corp. within the past 12 months.
